Rate-hike concerns send
stocks tumbling

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By Amy Baldwin
Associated Press

NEW YORK >> A weaker outlook for Intel and the possibility of higher interest rates prompt- ed investors to collect profits today, pushing stocks sharply lower across market sectors.

Wall Street's losses widened throughout the session with the Dow industrials falling more than 135 points and the Nasdaq composite index posting its weakest close this month.

The market's drop followed the Federal Reserve's decision yesterday to leave interest rates unchanged, although the central bank hinted of possible increases later this year.

"There's a lot of concern that when rates go up, the recovery will slow down," said Stephen Carl, head of U.S. equity trading for The Williams Capital Group.

The Dow Jones industrial average finished down 133.68, or 1.3 percent, at 10,501.57. The Dow rose 57.50 yesterday to close at its highest level of the year, 10,635.25. The blue-chip index has advanced for five weeks on increasing signs that business is improving.

Stocks rallied yesterday after the Fed's move affirmed that the recession could soon be over, but "we are having afterthoughts today. ... Econo- mists believe the Fed will reverse last year's trend of rate cuts with a rate hike in June or September," said Alan Ackerman, executive vice president of Fahnestock & Co.

The broader market also declined today. The Nasdaq composite index fell 47.93, or 2.6 percent, to 1,832.94, its lowest level this month. The last time the Nasdaq ended lower was March 1 when it stood at 1,802.74.

The Standard & Poor's 500 index declined 18.44, or 1.6 percent, to 1,151.85.

Declining issues outnumbered advancers slightly more than 2 to 1 on the New York Stock Exchange, with 2,158 down, 1,006 up and 189 unchanged. Trading volume was 1.27 billion shares.

The NYSE composite index fell 7.16 to 602.37, the American Stock Exchange composite index lost 2.14 to 896.92 and the Russell 2000 index, which measures the performance of smaller company stocks, fell 5.69 to 499.04.

The Treasury's 2-year note fell 732 to 98 2532; its yield rose 12 basis points to 3.66 percent. The 10-year note lost 2632 to 96 2/32; its yield rose 11 basis points to 5.39 percent. The 30-year bond fell 118 to 93 2732; its yield rose 8 basis points to 5.82 percent.

Traders said they were concerned that the Fed would increase interest rates before corporate earnings improve, which would make it difficult for them to justify stocks' current prices.

"The reality that the (interest rate) tightenings are going to come at some point is just something to make you a little nervous," said Barry Berman, head trader for Robert W. Baird & Co. in Milwaukee.

Dow industrial Intel fell $1.19 to $30.53 after Salomon Smith Barney lowered its second-quarter earnings and revenue estimates for the chipmaker. Competitor Advanced Micro Devices also fell, declining 62 cents to $14.17.

Other tech losers included Microsoft, down $2.13 at $60.10, and IBM, off $1.99 at $105.50. Both are Dow industrials.

Analysts say the technology sector will be the last to emerge from the recession as it waits for other companies to resume spending on computers and networking equipment. But they also say investors are anxious for these growth stocks to recover, and are more sensitive to negative reports about them.

Investors in the past month have heard upbeat reports from Old Economy sectors including manufacturing. So today's news that new home construction rose a bigger-than- expected 2.8 percent in February and to its highest level since December 1998 failed to trigger much buying.

And, home builders traded lower, which analysts attributed to the prospect of higher interest rates. Lennar fell $2.17 to $52.62 despite also beating first-quarter earnings estimates by 4 cents a share.

The financial sector, which is also sensitive to interest rates, also dropped. Banker J.P. Morgan Chase fell 90 cents to $35.19.

One of Wall Street's biggest losers was Bristol-Myers Squibb, which plunged nearly 16 percent, down $7.57 at $41.08, after disclosing that tests of its much anticipated blood pressure drug, Vanlev, showed it was no more effective than existing treatments.

Overseas, Japan's Nikkei stock average fell 2.3 percent.

In Europe, Germany's DAX index fell 1.8 percent, while France's CAC-40 and Britain's FT-SE 100 each lost 0.9 percent.